Liberalism, Socialism, and Marxism

Classical Liberalism

Classical liberalism was spawned from the Enlightenment. It began with Adam Smith whose seminal work, The Wealth of Nations, completely discredited mercantilism and revealed the wisdom and societal benefits of free markets. His invisible hand theory showed how, when individuals worked for their own self-interest, they benefited all of society because they would tend to create desired goods and services, adding to the overall wealth in the most efficient manner. This is called classical liberalism, not to be confused with modern American Liberalism, which takes a nearly opposite view.

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For the remainder of the 1800s, the history of political economy is a retrograde movement that seems to seek a role for government involvement in the economic and private affairs of individuals and organizations. What is most interesting about the prominent philosophers of this time is that, almost universally, the predictions made based on their theories proved not merely inaccurate, but to be spectacularly wrong.

Thomas Malthus would begin this march away from pure capitalism. In his essay on population, he proposed that population growth proceeded geometrically (that is increased by multiplication), while food production increased arithmetically (that is only accreted by small additional amounts). He pointed out that if this was the case that much of society must continually be on the edge of starvation. His basic assumptions proved to be mistaken. In the course of over two centuries, population growth in industrial nations actually slowed, and food production per acre advanced beyond all his expectations. This happened because he failed to take into account advances of the Industrial and Agricultural Revolutions, which made farms so much more productive. He also did not foresee that advances in medicine would decrease infant mortality. This decrease would actually cause families to be smaller, because people felt less inclined to have large families that were designed to ensure that at least some of the children survived.

David Ricardo picked up where Malthus left off. He proposed his Iron Law of Wages (1817). This stated that wages would always be near subsistence. Families would tend to be bigger when wages were good. This would increase the labor supply, which in turn - because labor was a commodity - would force wages down through the law of supply and demand. He felt that the only way to stop this process was to discourage large families. Like Malthus, Ricardo was mistaken, for largely the same reasons. He did not realize that the free market, after some initial hiccups, would create prosperity and abundance for every class. And affluence tends to actually reduce, rather than expand population growth.

The Roots of Socialism

Although Jeremy Bentham believed in laissez-faire economics, he proposed that the government should not only perform the role of law enforcer, but should also protect the working class. He came to this conclusion through his philosophy of Utilitarianism. In this philosophy objects or acts are good only if they have utility. For him utility is what brings happiness, and happiness is pleasure (or avoidance of pain). For Bentham it was the government's duty to ensure the greatest happiness for the greatest number of people. Bentham made the mistake that many economists and politicians would later make in believing that technocrats in government could devise policies that would more efficiently supply the needs and desires of individuals than Adam Smith's invisible hand.

John Stuart Mill took Bentham's ideas a step further. He proposed that people are not naturally competitive, but cooperative. He felt that once society suppressed the competitive spirit that the natural desire to cooperate would have everyone working for the benefit of all mankind. The philosophies of Mill and Bentham soon led to an attempt at a practical application of their theories. Robert Owen, a wealthy mill owner in Scotland, decided to try to build a socialist community. He sold his mill and bought property in Indiana, in the United States.

New Harmony was the name of the new community. All members of the community were given a stake in its ownership. All were supposed to work together to create wealth for all. Unfortunately for Owen, the experiment proved to be a failure. He, Bentham, and Mill, had not taken into account human nature. The failure was not a result of a lack of investment, tools, or resources, but because it was impossible to induce most people to work when they believed that they would be provided for whether or not they produced a product.

Many Utopian socialist communities were attempted in the 1800s. All proved to be failures at providing for even the basic subsistence of the community.

French philosophers were willing to take economics even further away from laissez faire. The Count of Saint-Simon proposed that since economics was so vital to human existence, it should be under strict governmental control. He thought the government should use technicians to regulate the economy. Charles Fourier proposed his own utopian community. He thought a small self-sustaining "phalanx" would bring about the most happiness in society. Louis Blanc in 1840 proposed an interesting idea. He thought that factories owned and run by workers would prove to be more efficient that those owned and run by bourgeois capitalists. Therefor, as these factories drove capitalist owned factories out of business, they could be bought up by workers. Thus, the means of production would naturally come into the hands of the working class.

The next step was taken by Auguste Blanqui who said the workers should take over the government by force in order to relieve the middle class of its capital.

Marxism

Karl Marx and Friedrich Engels developed what has come to be known as Communism and is often referred to as Marxism. They first laid out their ideas in a document called the Communist Manifesto and later flushed out the details in a multi-volume work called Das Kapital. Communism is based on the Romantic Period philosopher Hegel's work on the dialectic.

Hegel understood philosophy as a hypothesis. This hypothesis is opposed by an antithesis. The result of the conflict between the two is a synthesis, which becomes the new hypothesis to be challenged by a new antithesis, and so on forever. Marx applied this idea to social classes, stating that Feudalism was a conflict between Landowner and peasant, the result was a middle class which came to dominate. The rise of the middle class (bourgeoisie) was challenged by the worker. In Marxist theory, the middle class must inevitably lose the battle with the worker, but since there will only be one class remaining, there will no longer be a need for class conflict. Social peace would then reign. Of course, Marx did not foresee the rise of the aparatchik, or the government bureaucrat, that any revolt of the working class inevitably fosters.

Marx proposed a Labor Theory of Value, which hypothesizes that the value of any good or service is the sum total of the value of the labor that goes into it. He did not believe that capitalists deserved compensation for use of land, machines, and organizing the means of production. By this theory, profit is theft from the worker. He felt that property should be in the hands of the working class in the form of the government. What Marx failed to take into account is that the purchase or creation of capital goods is a risk, and that in order for such capital to be created and maintained the owner of the risked capital must be compensated. He also could not see that the most efficient organization and investment of capital could only be done by individuals who had a personal stake in that investment. Governments, filled with bureaucrats, are seldom the best judge of where capital should be risked.

Marxism, in various forms, has been tried in many countries, most notably, the Soviet Union and China, in every case it has failed to provide goods and services sufficient to supply the population. In both of those countries famines ravaged the population and long lines were endemic to the system. Both have reverted since to some form of market economy. Marxism's biggest fault is probably the same fault that doomed Owens's experiment in New Harmony, it does not take into account human nature. Without incentive, people will only work as much as they must.

The failure of Marxism, Socialism, and Liberalism is ironic in that it results in the same outcome Ricardo mistakenly attributed to laissez-faire capitalism, the working class inevitably ends up working at subsistence wages...or less. The story of 19th century economic thought is an interesting retrograde movement. It began with Adam Smith's clear explanation of how economies work, and by tinkering and convoluted logic came to the conclusion that an obvious recipe for disaster (Marxism) was the solution to man's economic problems.